Refer to the following table and assume that the total labor supply in Taiwan is
ID: 1142095 • Letter: R
Question
Refer to the following table and assume that the total labor supply in Taiwan is 4 and the total labor supply in Vietnam is 8.
Absolute Advantage
No. of Telephones produced per hr
No. of Radios produced per hr
Comparative Advantage
a. What is the opportunity cost of 1 unit of radios in terms of telephones in Taiwan? In Vietnam?
B.Determine whether each of the following statements is true or false. Provide a brief explanation of why it is true or false.
I.Taiwan has an absolute advantage in the production of both telephones and radios.
II.Vietnam has a comparative advantage in the production of telephones.
IIIOne possible production combination for Vietnam is 40 units of telephone and 80 units of radio per hour
C. If the two countries engage in international trade, what will Taiwan produce and how many?
D.What is the real wage in Taiwan in terms of radios? What is the real wage in Vietnam in terms of telephones?
E.Will Taiwan and Vietnam trade if the international relative price of telephone is 3? Briefly explain why or why not.
Taiwan vietnamAbsolute Advantage
No. of Telephones produced per hr
10 5 ?No. of Radios produced per hr
50 10 ?Comparative Advantage
? ?Explanation / Answer
a. The opportunity cost of 1 unit of radio in Taiwan:
50 radios = 10 telephones
1 radio = (10/50) telephones = 1/5 telephone
The opportunity cost of 1 unit of radio in Vietnam:
10 radios = 5 telephones
1 radio = (5/10) telephones = 1/2telephone
b.
I. The statement that Taiwan has absolute advantage in production of both radio and telephones is true because Taiwan can produce higher quantities of both radio and telephones.
II. Vietnam has a comparative advantage in production of telephones is also true because the opportunity cost of telephone for Vietnam is 2 radios which is less than the opportunity cost of telephone for Taiwan which is 5 radios.
III. One possible production combination for Vietnam is 40 units of telephone and 80 units of radio per hour is false because Vietnam only have 8 labor and if they produce 40 telephones than they won’t have any hours for production of radio ( 8 x 5 = 40).
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